28th Annual State of Logistics: “Cognitive dissonance” realized

Logistics Management (LM) has once again devoted a significant portion of its July issue to putting the “Annual State of Logistics Report (SoL)” into context for logistics managers. The SoL, a comprehensive report that encapsulates the cost of the U.S. business logistics system during the previous year, represents the clearest snapshot available of how economic conditions have shaped the current logistics landscape.

The release of the report—which took place on June 20 in Washington, D.C.—sparks our annual investigation into the details of the findings and sends our entire editorial staff on a quest to summarize where each transportation mode currently stands in terms of service, capacity and rates.

Our John Schulz, who attended the SoL event, says that it appears that the cloud of uncertainty that started accumulating during last year’s election season certainly permeated the nooks and crannies of our logistics operations over the course of 2016—and it seems to be sticking around.

According to Schulz, the authors of the SoL take their diagnosis one step further. “They contend that this fog of volatility has the logistics segment destined for a prolonged bout of ‘cognitive dissonance,’” he says. “Upon further research, I found that this means a ‘conflicted state of mind,’ where a person simultaneously holds two or more contradictory beliefs or ideals—and you know, that pretty much nails it.”

This “conflicted state” continues to be fueled by the frustration over subpar growth in overall GDP and the continued political bluster that’s yielding few results in terms of regulatory changes or much needed infrastructure improvement. At the same time, U.S. business and the shippers managing their freight are watching the stock market, technology investments, and consumer confidence all rise.

“Amidst these mixed economic and political messages, shippers have to look no further than demands on their trucking partners to see the seesaw effect in action,” says Schulz. For example, the most recent ATA “For-Hire Truck Tonnage Index” increased 6.5% in May. “However, that positive number followed a 1.5% decline in volume in April. In fact, logistics managers are seeing volume disruptions of this caliber across all modes in most markets while the general business vibe is upbeat,” Schulz says.

But despite vacillating volumes and mixed signals, the good news to be taken out of the report is that logistics managers have done a terrific job squeezing efficiencies from their existing networks. According to the SoL, U.S. business logistics costs fell 1.5% last year—7.5% of GDP—after rising at a five-year compound annual rate of 4.6% from 2010 to 2015.

“Costs fell across all three key components—transportation, inventory carrying and miscellaneous costs—mainly due to overcapacity, slack volumes and rate pressures in several sectors, even while demand and prices rose in others,” says Schulz. “But overall, the fact that total logistics costs are near an all-time low is a testament to the work logistics professionals have done managing costs and driving good contracts.”

As for what the future holds, Schulz adds that all of this uncertainty hasn’t slowed the pace of change—in fact, just the opposite. “The SOL report certainly validates everything we’ve been following in LM,” adds Schulz. “In parcel, last-mile, brokerage, across every service and mode, we’re seeing newcomers and mainstays fight for market share—and they are using innovation and technology to undermine old business models in the process. If this maintains, look for that 7.5% of GDP to continue to drop.”